Free Cash Flow (FCF) is the cash a company generates from operations after subtracting the capital expenditure (capex) needed to maintain or expand its asset base.
FCF = Operating Cash Flow − Capital Expenditure
FCF is what is truly "free" — available to pay debt, return to shareholders via dividends or buybacks, or invest in growth. Net profit can be artificially inflated by accounting; FCF is much harder to fake.
FCF vs Profit vs EBITDA
- Net profit includes non-cash items and can be managed through accounting choices
- EBITDA** adds back depreciation but ignores capex investment
- FCF is what actually hits the bank account — the ground truth of profitability
Why it matters for unlisted shares
Consistent positive FCF is the single best indicator of a company that doesn't need perpetual outside funding to survive. An unlisted company burning cash needs to keep raising capital (diluting existing holders) to stay alive. One generating FCF can fund its own growth and reward shareholders.
Example: An unlisted B2B SaaS company generated ₹50 crore FCF on ₹200 crore revenue — a 25% FCF margin signalling a capital-efficient, self-sustaining business.